L&T Mutual Fund looks to sell 49% stake to finance expansion plans

L&T Mutual Fund, ranked 14 by assets, is looking to sell a 49% stake to a strategic partner to raise capital to expand its distribution reach across smaller towns.

MUMBAI: L&T Mutual Fund, ranked 14 by assets, is looking to sell a 49% stake to a strategic partner to raise capital to expand its distribution reach across smaller towns and cities and gain market share, said two people with direct knowledge of the development. The stake sale could fetch an estimated Rs 600-625 crore.

“The fund is exploring various options, which include a joint venture with an established mutual fund, looking for a merger with an existing one or selling stake to a foreign player,” said one of the persons. An L&T Finance spokesperson did not respond to emailed questions.

“The value of a mutual fund is calculated at 5% of the total assets under management,” said an investment banker aware of the development who cannot be named as he’s not authorised to speak to the media.

L&T Mutual Fund, which manages Rs 25,050 crore, could be valued at 5% of its assets, going by previous such exercises, experts said. “Expanding their distribution base and onboarding of new clients is the major challenge for the mutual fund industry,” said Manoj Nagpal, CEO, Outlook Asia Capital. “The number of active distributors has dwindled from 35,000 in 2008 to less than 10,000 now.”

Fund houses should get three things right to be successful, said Dhirendra Kumar, founder and chief executive, Value Research. They need to “manage money well, have a long-term focus and (have) a good distribution network”, he said. Fund houses that don’t get the mix right will look to exit, yielding opportunities for consolidation in the space.

Margins for many funds have eroded, forcing them to seek a way out of the business. L&T Mutual Fund has a 2% market share among 43 asset management companies that handle a total Rs 13.46 lakh crore. Its assets expanded by 2% to Rs 25,059 crore from Rs 21,336 crore in FY15. The Indian mutual fund industry has seen consolidation in recent years.

In 2015, DWS Asset Management sold its business to DHFL Pramerica. Between 2013 and 2015, several overseas funds such as Morgan Stanley, ING Mutual Fund, Goldman Sachs and Pinebridge sold their mutual fund businesses to Indian companies, while Religare sold its stake to foreign partner Invesco. Experts said the local mutual fund industry is at a nascent stage but has strong growth potential.

Assets under management (AUM) are at 5-6% of GDP, significantly lower than other emerging economies such as Brazil at 40% and around 33% for South Africa, said a KPMG report. Assets managed by the top eight companies account for 70-75% of the total industry AUM.